Gas finds in difficult areas to command 85% higher prices

In a bid to attract investments in oil and gas sector, the government on Thursday announced a new pricing formula for undeveloped gas discoveries in difficult areas that would result in 85 per cent jump in rates and help monetise Rs 1.80 lakh crore of inert finds.

While giving nod to pricing freedom subject to a cap for gas produced from High Pressure High Temperature, deepwater and ultra deepsea areas, the Cabinet also approved replacing the controversial Production Sharing Contract (PSC) with simpler revenue-sharing regime for all future field auctions.

Also, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, approved a policy for grant of licence extension to small and medium sized discovered fields like Panna/Mukta Tapti of BG Group of UK by 10 years on revised terms. The policy, however, kept out extension of Cairn India’s prolific Rajastan block. Under the new pricing formula, all undeveloped finds - 28 in all with known reserves and 10 other potential one of firms like state-owned ONGC, Reliance Industries and GSPC, as well as future discoveries would be priced at a maximum of one-year average price of alternate fuels like fuel oil, naphtha or imported LNG and coal.

Oil Minister Dharmendra Pradhan said the pricing and marketing freedom is being given to undeveloped gas finds in difficult areas but subject to a ceiling rate. This ceiling price would be the lowest of imported cost of fuel oil, or landed price of liquefied natural gas (LNG) or weighted average of imported price of coal, fuel oil and naphtha. Based on average price in 2015, this cap comes to $7.08 per million British thermal unit. This rate compares to $3.82 pre mmBtu rate based on a formula approved by the BJP government in November 2014. Price as per this formula is slated to drop to $3.15 in April, a rate considered too low to meet cost of exploration.

Pradhan said caps would be revised six monthly based on one year rolling average with a lag of one quarter. So the price cap for April to September would be based on average rate in 2015.